SINGAPORE, 13 OCTOBER 2008 -- Oracle’s recent acquisition of enterprise project portfolio management (PPM) vendor Primavera is no surprise to David Mitchell, senior vice-president for IT research at Ovum.
Mitchell said that Ovum has predicted the acquisition of Primavera for several months, following Oracle’s moves to expand its services, transport and construction (STC) business.
According to Oracle, the move was in response to the growing importance of enterprise PPM. "Enterprise PPM is moving to the forefront of business strategy for industries managing complex and capital intensive projects, and has emerged as a global driver for value creation and business success," said Oracle’s president, Charles Phillips.
Phillips said that with 20 per cent of global GDP spent annually on projects, the acquisition is expected to enhance Oracle’s market position in the enterprise application space.
‘Diagonal’ acquisition
While the acquisition provides Oracle with further growth opportunities, Primavera is “different in style” as part of a dedicated global business unit within Oracle, Mitchell noted.
Mitchell said that unlike most other acquisitions that have been either horizontal or vertical, the Primavera one has elements of both.
“Projects play a very significant role in most services industries, so there is an argument this acquisition should be part of an STC vertical strategy,” Mitchell said. “On the other hand, projects are also a cross-industry act of life, so it could be horizontal.”
In reality, both arguments are true, and hence Ovum classifies it as a diagonal acquisition, Mitchell said.
Oracle acquisition strategy
Mitchell noted that Oracle’s acquisition strategy has involved many different types of takeovers. Initial acquisitions of companies such as PeopleSoft and Seibel increased Oracle’s customer base and generated free cash to help fund future expansion.
Then there were several middleware acquisitions that helped Oracle build an integrated middleware platform, on which future applications could be built more cost efficiently.
There were also some industry acquisitions like Retek and SPL WorldGroup, which bolstered Oracle’s penetration into information-intensive verticals such as retail, banking and utilities, Mitchell said.
Mitchell noted that Oracle’s acquisition of Hyperion and Agile started to “break the mould” and deliver business potential for both horizontal and vertical revenue expansion. “Ovum expects to see further acquisitions of the same type that build specialist functionality, while simultaneously building the capabilities of target verticals,” he said.
Cross-selling
According to Mitchell, Oracle has been “remarkably effective” in generating cross-selling revenue from its acquisition portfolio. He noted however, that the investment community often heavily discounts cross-selling opportunities, with most doubting whether these are likely to be achieved in practice.
On the other hand, Mitchell observed that Oracle has been able to leverage on its R&D efficiency to save application development time. Additionally, the vendor has a significant existing client base in project-intensive industries.
“By acquiring Primavera, Oracle has started to arm its salesforce with stronger arguments to push for highly lucrative enterprise licensing agreements (ELAs) in those industries,” Mitchell said. “Ovum expects the proportion of ELA deals in professional services, transport, construction and engineering to rise in the year after the deal closes.”
Financial details of the deal, expected to close in the second half of 2008, were not disclosed.
